Ag Trade Deficit Sets Another Record
It's another record setting year for the ag trade deficit. The current fiscal year is wrapping up with a $30.5 billion deficit and 2025 is projected to be more of the same. USDA economists expect the deficit to increase to $42.5 billion in the coming year. Contributing dynamics include a strong U.S. dollar, an increased consumer demand for imported products, and trade competition.
American consumers now purchase most of their fruits, vegetables, and fish year round thanks to lower priced and reliable import, that have gain market access with trade agreements. American farmers are focusing on ag sectors destine for export markets. For almost 50 years the United States have had a trade surplus where our goods have been highly sought after and we’ve exported more than we’ve imported. The combination of higher imports and imports of higher value products has flipped the United States to a net importer of agricultural goods. The current deficit has changed the landscape of U.S. ag and food production.
U.S. Products are Expensive
While other currencies have lost value in recent years, the U.S. dollar remains steady. That is a good thing if you want to travel abroad or purchase goods from other countries. However, it also makes U.S. goods more expensive. As other currencies decline their goods can be purchased at lower prices. For the American farmer this is problematic. American commodities have now become expensive by comparison. Even if they benefit from cheaper inputs, there are fewer buyers for their products.
Overall, inflation is expected to decrease which could offer some relief to the current imbalance in commodity pricing between nations. Consumer spending in the U.S. increased slightly in 2024, but is expected to level off in the coming year. Until inflation stays under 2% and interest rates come down, business investment and expansion faces risky obstacles. Because of this, overall economic growth in the United States is expected to slow to 1.9%. We might see an easing of inflation pressure, but not enough to reverse the deficit trajectory going into the 2025 fiscal year.
Consumer Demand for Imports Increases
Consumer demand represents another piece of the puzzle. Imports of sugar, coffee, alcohol, and fresh produce have been on the rise as supply chains continue to rebound from pandemic slowdowns and consumer purchasing increases. Imports of these sought after items are expected to increase by $8 billion in the 2025 fiscal year, totaling upwards of $212 billion. Between 2011 and 2021, 44% of the fruit and nuts and 35% of the vegetables consumed by Americans were imported. Strong reliance on foreign products and an ever increasing demand for them has contributed to the deficit.
At the same time commodity export prices are in constant flux. Cotton, corn, soybeans and beef all experienced lower per unit values in 2024. But, even with lowering commodity trading prices U.S. exports didn’t increase, which is troubling. Reduced exports of these commodities, particularly to China, widened the gap. Exports there fell by $3 billion last year and a similar trade scenario in 2025 adds to the USDA’s outlook of a growing deficit.
U.S. Trade Deals
The last new free trade agreement signed by the United States was with Panama in 2012. The United States has 14 free trade agreements, with 20 countries. Other agricultural producers have more agreements giving them better market access. For example, large markets for beef and animal feedstocks have opted for agreements with nations offering tariff free trade in closer proximity and we’ve lost some trade ground to Canada and Australia.
Brazil and Argentina have emerged as strong competition for the United States in the ag sector. According to the USDA outlook report, Argentina is expected to almost double in growth this year from 2.8% in 2024 to 5% in 2025. Brazil is expected to maintain a similar growth percentage as last year of 2.1%. South American growth has encroached on export markets usually claimed by the United States.
With exports in decline and imports on the rise, the USDA has freed up $300 million to aid in the development of new export markets. Free trade agreements with fast growing economies in Africa could be a way to reverse the deficit dilemma and offset fewer exports to China. Without new agreements the American farmer will struggle to remain competitive with nations offering cheaper commodities.
For decades the United States experienced strong trade relationships and trade surplus. To consider a four year deficit streak is alarming and is certainly catching the attention of economists. Working to cut domestic production costs could make American commodities more competitive in the global markets as could new or amended trade agreements. The trade decisions going forward will shape our food security landscape.
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